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Precious Metals vs. the Stock Market

Now that you have a fair grasp on how Precious Metal investing works, we should examine how Precious Metal investments differ from perhaps the most traditional investment area—the stock market.

Precious Metals vs. Stocks

Many of the visitors on our website were already familiar with traditional stock market investments when they began to be interested in Precious Metals investments. The main difference between these two types of investments is that stocks fall under the classification of “equities,” meaning that the stockholder technically owns a tiny portion of the company that issued the stock, while precious metals are classified as “commodities,” meaning that the holder of the Precious Metal owns an actual physical product. Stockholders make money when the companies they hold equity in generate more profit or improve their business standing in some other way, creating an increased demand for shares in the company and driving up price of their stock. Precious metal investors make money when rising demand for Precious Metals increases causes the value of their holdings to increase.

Stock Market Returns Since 2000

Historically, the stock market, as measured by the Dow Jones Industrial Average, or DJIA, has significantly outperformed Precious Metal investments. This in not unexpected as Precious Metals investments are generally viewed as a hedge against inflation and risk rather than a profit-seeking investment. However, the past 12 years have seen a sea-change in that area, as both Gold and Silver have outperformed the DJIA at various points within that timeframe.

Experts estimate that the DJIA has returned a total of ~18% on an investment made in 2000 and held until the start of 2012, including dividends. For clarity’s sake, say that an investor put $10,000 into the stock market in January 2000, and held the shares until today. The investor’s stock would now be worth about $11,800.

How have Gold and Silver performed in that same timeframe?

Well, if an investor had put $10,000 into Physical Gold in early 2000, and held the gold until present day, the investor would now hold over $50,000 in Gold. Curious about Silver’s performance? If an investor had put $10,000 into Physical Silver in January of 2000, and still owned that Silver today, the investor would now have well over $53,000 in Silver holdings.

The final results on a $10,000 investment over 12 years:

  • Stock Market according to the DJIA – $11,800
  • Gold –  at least $50,000
  • Silver – at least $53,000

What Happened?

It is certainly true that the stock market has historically outperformed Silver and Gold, so what is different now?

The main causes of this reversal are:

  • Loose monetary policy by major governments like the USA. By injecting a great deal of cash into the economy, governments have boosted the prices of commodities.
  • Increased market volatility. When the stock markets experience volatility investors seek commodities such as Precious Metals to hedge their positions and reduce their risk.
  • Upcoming debt crises. Europe is on the brink of catastrophe due to excessive debt and leverage levels, and the USA isn’t far behind. Investors saw the fallout when a major country like Greece defaulted, so they rush to Gold and Silver for security.

While traditional stocks will certainly make up the majority of almost everyone’s portfolio, the worldwide economic pressures we are currently experiencing make it the perfect time to diversify into Precious Metals to hedge against inflation, have a tangible asset and reduce your overall investment risk.

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